I traditionally do not like to invest in public venture capital vehicles because they have not traditionally performed well and if they were very good investors they would normally remain private to reap higher rewards. However, TINY is different because of its singular focus on nanotechnology. First, by remaining exclusively focused on nanotechnology they have become one of the premiere venture groups in that sector. As such, they get invited into many syndicates with other top-tier venture groups, including Draper Fisher Jurvetson, Oak Investment Partners, Bessemer Venture Partners, Sevin Rosen Funds, Charles River Ventures and Kleiner Perkins Caufield & Byers.
Second, this is the only vehicle I am aware of in which you can buy a pool of nanotechnology investments to diversify risk. There are only a few public nanotechnology companies at this time and an investment in any one nanotech company would be fairly risky, but a collection of nanotech investments significantly reduces that risk.
As of March 31, 2007, the Company had about $58 million of cash for future investments and $54 million of investments in 28 companies (valued at market). Currently, none of its portfolio companies are public, but several have the potential to go public during the next 24 months.
The Company will realize value when its portfolio companies either go public or are acquired. The most likely candidates for the earliest liquidation events are in the semiconductor industry with candidates such as CSwitch, Molecular Imprints, NeoPhotonics, Nanosys and Nantero. Longer term the pharmaceutical/biotechnology sector may also produce some big winners with candidates such as Kereos, Mersana Therapeutics and Metabolon. They are also invested in companies serving the solar power, industrial laser, industrial lighting and specialty materials markets.
Diversified Pure Play in Nanotechnology
Nanotechnology has large market potential but this is the only diversified investment pool of nanotechnology companies that I know of.
Very Good Co-Investors
Their list of co-investment venture capital partners gives me comfort that they know what they are doing.
Solid Cash Position
They currently have about $58 million of cash for future investments in either existing portfolio companies or new companies. They shouldn't need to raise additional equity capital for the next couple of quarters.
If none of their investments turn into big winners this stock will languish and likely drop significantly from current levels.
Nanotechnology is not Commercialized
If the opportunities in nanotechnology prove to be much less valuable than industry pundits' claim, the stock could languish and likely drop significantly from current levels.
It is hard to value a pool of venture capital investments, but this is how I viewed pricing. The current net book value is $5.27 at 3/31/07, so the current price is about 220% of book value. However, all of the Company's poor performing investments have been written down to market, but its potential winners are still carried at cost, so book value is likely understated.
In the end, I was comfortable buying a portfolio of nanotech companies at 220% of a likely understated net book value per share. Whereas I would typically target 10% of the portfolio for most new investments, I am going to limit my risk in TINY by only starting with a 5-6% position in the portfolio.
Full disclosure: long TINY.